Financial investors weigh risk, return and liquidity in their investment decisions; impact investors weigh all of these factors, plus impact. Intentionality and measurement are fundamental aspects that define impact investing, yet impact measurement is an extremely difficult challenge.

Impact can be defined in many ways, and different investors may have very different goals and interests. Some types of impact may be “easy” to measure (i.e. how much have unbanked or underbanked customers saved by using this fintech service vs. incumbent solutions?); others much more difficult (i.e. how has this advocacy platform influenced public policy?). Counting “lives touched” is unsatisfying, yet the cost of conducting randomized control trials that serve as the “gold standard” for measurement can be lengthy and prohibitively expensive. And given the variety in the types of impact across a portfolio, and across funds, how do you “roll up” impact measurement in any kind of meaningful way?

The challenges are many, and measurement has been an important discussion in the field of impact investing for many years. In a recent article in the London School of Economics Business Review, Brian Trelstad, Partner at Bridges US, argues that impact management — articulation of an investor’s impact objectives — is an important precursor to effective measurement.

At Impact Engine, we sit down with entrepreneurs during our due diligence process to talk about the impact they hope to achieve, the target populations they want to serve, and how they might measure and report on the impact they’re having, both now and in the future. We often see a pattern where the early metrics are relatively simple (and inexpensive) to track, but over time become increasingly more nuanced and meaningful. For us, it’s critical that entrepreneurs be committed to measuring their impact and working with their investors to define and refine the measurements that best capture that impact while balancing the pragmatic constraints startups face with the desire for rigor in measurement and reporting.

A recent series of Forbes articles by Devin Thorpe addresses impact measurement advice for social entrepreneurs from leaders in the field, and sets out to provide language and context for what impact investors and funds look for in measuring impact. We’ve highlighted a few comments below that resonate most with our work in measuring impact.

Define a theory of change.

Cathy Clark, Director of CASE i3 at Duke, argues that each social entrepreneur must craft an “if-then” statement that relates to their business model and problem they’re solving to make a successful argument about their impact. This will help social entrepreneurs “recognize assumptions in the theory and track measures that help test how well things are actually occurring.” Defining a theory of change helps social entrepreneurs better understand their impact and, in turn, define specific impact metrics. Uma Sekar, Impact & ESG Manager at Capria Ventures, notes that businesses should lay out measurable goals that align with their core metrics. This way, the company can ensure that its business is thoroughly rooted in impact, and that it cannot grow revenue without growing impact.

Establish a simple, customized quantitative standard.

Creating a single standard by which to measure a company’s progress is a great way to keep them on track. Founder and CEO of Inspiring Capital, Nell Derick Debevoise, explains that she uses simple questions to track her portfolio’s progress and understanding of their role in advancing social good. At Impact Engine, we survey our portfolio companies every six months, asking them to report on their pre-defined impact metrics, as well as respond to more open-ended questions so we can better understand and support each of our entrepreneurs on their journey to impact.

No single set of metrics will work for all social ventures.

It’s no surprise that the same metrics cannot be applied across all portfolio companies. Matthew Weatherley-White, co-founder and Managing Director of the CAPROCK Group, writes that “there are no universal impact key performance indicators.” Trying to measure too many aspects of a company can be time-consuming; if your business wants to be more impactful, focus on measuring whatever is most crucial to the operations and mission of your company. Entrepreneurs that over-extend themselves when it comes to impact measurement often lose sight of their initial impact focus. Lay out clear impact objectives and stick to them as much as possible.

Impact takes time.

If there’s anything we’ve learned here at Impact Engine, it is that impact takes time. In order to have impact, the companies in our portfolio need to become successful as businesses. Many early stage companies pivot their product or business model based on what they learn from their initial customers, partners and markets, and their impact may evolve as well. Patience and support are key.

We’re always open to learning more and look forward to hearing your thoughts.

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